JPMorgan Chase implements digital cryptocurrency and interprets "stable currency" from the perspective of monetary economics

JPMorgan Chase, one of the largest financial services institutions in the United States, announced in February that it will issue the encrypted digital currency JPM Coin, which is considered by the outside world to be the official entry of JPMorgan Chase into the blockchain. The author combines JPMorgan Chase to issue the "Morgancoin" hot event, analyzes the encrypted digital currency from the perspective of monetary economics, and what does it mean to interpret JP Morgan Chase's release of Morgan? What is the purpose of digital currency trading? Is the so-called "stabilized currency" really stable?

1. Why did JP Morgan Chase issue "Morgancoin"?

Before you understand JPMorgan's currency, you first need to understand what is liquidation. Foreign countries are divided into three types: payment, liquidation, and settlement, but they are collectively referred to as clearing or clearing in China. The transaction process before liquidation and settlement refers to an initiation, authorization, and transmission phase of the payment instruction of the information. If you do not involve the transfer of money funds across the account department, then you do not need to liquidate, directly transfer money from one account to another. But if this kind of currency transfer involves a cross-account organization, then it needs to be liquidated. Clearing is divided into real-time and delayed modes.

In China, liquidation is carried out by the central bank. The supervision system used by the central bank is called the real-time full settlement system (RTGS). The supervision system used in the United States is called FEDWIRE. It was established in the 1970s and has been used. to date. The FEDWIRE system has not been extensively renewed or updated, so FEDWIRE can only be said to be a near real-time or near real-time system compared to RTGS in other regions.

However, there are some differences between FEDWIRE and real-time systems. For example, if I pay a cheque in the United States, it usually takes five working days to withdraw cash. If there is a holiday in the middle, it will have to be postponed and traced back to the source. This delay is not due to the lack of money of the American people, but because of the US Payment systems, especially retail payment systems, cannot be delivered in real time. For this reason, in November last year, the Federal Reserve sought advice from the whole society (mainly those related to these payment markets): how should the United States improve its payment system and improve its payment efficiency.

In this context, JPMorgan came out to make a "token", which is not just JPMorgan, but other banks also need such tokens. In the case that the Fed does not support it, the people first use tokens as an alternative to experiment. Earlier in 2017, Japan’s Mitsubishi UFJ Bank issued a similar token J-Coin to several major banks. However, this thing is not based on blockchain technology, but the purpose is consistent with JPMorgan.

Whether in the United States or Japan, the issuance of tokens by financial institutions is a phenomenon of "must be done", which is fundamentally inefficient in its payment system. However, as for the issue of tokens issued by JP Morgan Chase, the Fed’s officials are not optimistic because there is no Fed’s endorsement and commitment behind it. If there is liquidity risk, who will bear this responsibility? Without the endorsement of the Federal Reserve and the US Treasury, JPMorgan’s payment system is doing more and the risk is greater.

Of course, JPMorgan itself can't bear the risks arising from the system's enlargement. This system may eventually become the "common land" in economics. The tragedy of the commons stems from the difficulty of defining the legal obligations and responsibilities of all parties. On this basis, JPMorgan expects to maintain the entire token system under a controlled volume.

Second, what is the purpose of digital currency trading?

The digital currency is a currency substitute for cross-border use. The US dollar is the target. In addition to the Indian rupee, the Mexican peso and the Australian dollar, the other 16 legal currencies are in compliance with the one-price law on 23 platforms. Explaining the one-price law in digital currency is the platform renminbi quote of Bitcoin, which is converted into US dollars according to the RMB exchange rate, and is consistent with the platform dollar quoted price of Bitcoin. For example, if you buy a burger in China, the price of the renminbi purchased for burgers is the same as the price at which you buy hamburgers in the US. Explain that in these 23 platforms, the quoted price of Bitcoin can fully reflect the fluctuation of the foreign exchange market, further indicating that the main purpose of people trading Bitcoin is to cross-border and exchange bitcoin from local currency to US dollar.

Buying bitcoin and trading in the country will not reflect the domestic bitcoin quotes. He reflects the changes in the exchange rate of the national currency against the US dollar. The main purpose of this phenomenon is "cross-border money laundering." A series of mainstream cryptocurrencies, such as Bitcoin, Ethereum, and EOS, are used for cross-border purposes because their daily quotes fully reflect exchange rate information.

In addition to speculative currency, another purpose of people involved in cryptocurrency transactions is to transfer assets, which creates a problem of currency substitution. In the 1970s, the Bretton Woods system collapsed soon. Some countries in Latin America and Southeast Asia were relatively backward. Therefore, government agencies have produced corruption and issued a large amount of legal currency, so that the final legal currency is not as good as paper. At this time, residents of these countries are more willing to use the dollar to conduct daily payment transactions. These countries that used the US dollar as a currency substitution became dollarized, and the peak period of dollarization occurred after the collapse of the Soviet Union.

Encrypted assets emerged first in the United States, and it was priced in dollars. It did not say that it was priced in Swiss francs in euros, all of which were priced in dollars. So Americans think that this kind of thing is a kind of dollarization, or a digital embodiment of dollarization. The US government does not need to manage it, at least the US Treasury is this view. The US government has never said that he wants to take the initiative to push the dollar, nor does he say that I want to oppose it. This is the result of the market. Well, it is the long-term attitude of the United States to such a dollarization. Therefore, the US Treasury Department believes that this is a normal dollarization of crypto assets, which are priced in dollars.

In July last year, the Turkish lira collapsed because of problems in the Turkish government’s finances, when Turkey’s bitcoin offer suddenly rose. Because some people already know or expect the Lira to have problems, they need to change the lira to US dollars. At this time, the demand for Bitcoin has soared, and the price of Bitcoin has risen sharply.

In contrast, the Brexit in 2016, the British pound against the US dollar was in a relatively stable state some time before the Brexit referendum came out. The results of the Brexit release, the pound against the US dollar also fell, but the bitcoin against the pound The offer fell and the decline was very serious. Because the people do not need to use the pound for the bitcoin, then use the bitcoin for the dollar, and the pound to the dollar directly. There is still a 2% fee for using the pound for the bitcoin and then for the dollar. The UK is not a foreign exchange-controlled international. The pound is fully convertible, so you don't need to use this kind of encrypted assets to use bitcoin or stable currency to make an intermediary for foreign exchange transactions. At this time, you should sell the bitcoin held in pounds sterling and sell it for US dollars. Putting the pound-denominated position down, the dollar-denominated position went up, so the sale of bitcoin to the dollar, the bitcoin price also fell.

For developing countries, the government is wary of bitcoin and is wary of various stable currencies because it is priced in dollars, it serves the United States, and it has a non-linear characteristic in financial markets, that is, risks are not Expected. When the risk comes, everyone may be caught off guard.

Therefore, the central bank, the foreign exchange administration and other supervisory agencies strictly supervise the transaction of encrypted assets, both to protect national security and to defend the people's property.

3. Is the stable currency really stable?

Before explaining whether the stable currency is stable, it needs to be clear that there is a large amount of fraud in the virtual currency transaction. For example, USDT (Tekrainian currency, a virtual currency) may have the possibility of fraudulent issuance because the coefficient of change in USDT price is 0.94, close to one. This shows that the price is not formed by the equilibrium of the market. In other words, it is not the price reflected by the real market supply and demand, but the typical price after artificial manipulation.

So, what exactly is "stabilized currency"? From the perspective of monetary theory, the stability of currency values ​​or the stability of currency values ​​does not mean the stability of currency denomination, but the stability of money purchasing power. For example, today's one hundred yuan can buy a pound of apples. After ten years, one hundred yuan can buy this pound of apples. That means the yuan is stable. This one hundred yuan renminbi, I can stably change to a pound of apples within ten years, this is the stability of the currency value.

This is the result of rigorous theory and complex calculations. From the perspective of academic expression, the stability of the currency of a currency, what is its definition? It is the utility of this unit currency to the currency holder to the holder than the actual consumer goods that can be exchanged with this unit currency, and their ratio is stable.

Then in the economic system, we can think of this government as a decentralized organization, except that it exercises some functional governance functions, or "central planners."

The money supply needs to keep up with economic development in order to support the trading of the entire market economy. Then the stable currency is the same, the stable currency is going to be bigger and bigger, and the number of stable coins will be more and more. If the price is a balanced result of market supply and demand, without artificial intervention, or artificial fraud, then the more stable coins are issued, this is the issuer’s liability for the issuer, that is to say If there are too many debts issued, then the value of the currency is definitely unstable. Because the economic model that can be supported is not that the number of stable coins you issue is growing at the same time, it is likely to remain stable for a period of time, but the number of issuances will also increase.

For the government, the government's tax revenue, the government's fiscal revenue can be used to fill this gap. So what is this distribution mechanism for decentralization? It can only be charged, or it can be filled with the profit earned by the issuer. If he wants to maintain a dollar that doesn't fluctuate, or if the volatility is fluctuating, he has to fill in some of the cost or fill in some of the value. Because he can't collect taxes, he is not a government, he has no ability to collect taxes, then he can only collect fees from each trader, and his name is a stable fee.

For most people, stable coins are not needed. Who needs it? The person who stirs up the money needs to be needed by the person who washes money, and the person who smokes the money and the person who washes money may be the same type of person. In the face of some high-pitched voices of speculation, ordinary people need to strengthen their judgment on information and their awareness of risk prevention, and beware of falling into a trap.

Author Zhao Wei (Deputy Secretary-General of the Center for Financial Innovation and Internet Finance Rule of Law, China University of Political Science and Law, Special Advisor of Zhongxin Jingwei)

Source: Zhongxin Jingwei APP